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14 February 2011

The Potential Applicability of Section 2(m) to Exports

Note: This post deals with the applicability of the proposed amendment to Section 2(m) of the Copyright Act to exports, which has been debated. Its author, Nandita Saikia, has been involved in advising a number of organisations on the various aspects of the Copyright (Amendment) Bill, 2010, including the proposed amendment to Section 2(m).

The Exhaustion of Rights

Copyright owners have a right to sell copies of works protected by copyright. However, the right is a restricted right: a copyright owner may only control the first sale of a copy of a work. After this, he loses/exhausts the right to control subsequent sales of that copy of the work, assuming that the “First Sale” of is a legal sale of a legally copy of the work.

Copyright regimes vary, and upon the First Sale of a copy of a work, a copyright owner may lose the right to control subsequent sales only in the country where the First Sale took place -- this is referred to as national exhaustion. Alternatively, he may lose the right to control subsequent sales anywhere in the world (i.e. international exhaustion would come into play). Or he could lose the right control subsequent sales in a particular region whether that region were determined by international law (such as in the case of regional exhaustion followed in Europe) or were determined by the intention of the copyright owner (such as in the case of books designated to be sold in the Indian sub-continent by publishers).

The Indian Copyright Act, 1957, (the “Act”), does not explicitly state whether India follows the principle of national or international exhaustion with respect to books. Section 14, inter alia, states that it is the exclusive right of the copyright owner to issue copies of a literary work to the public which is not already in circulation, and the explanation to the Section states that a copy which has been sold once shall be deemed to be a copy already in circulation.

Unfortunately, the Explanation does not clarify the critical question of where a copy once sold would be deemed to be in circulation. If the work were to be deemed to be in circulation only within India after the first sale, it would follow that the rights of the owner would be exhausted only within India, and that the country follows the principle of national exhaustion as far as books are concerned.

As an extension of this conclusion, copyright owners have argued that the first sale of a copy of a work results in not the exhaustion of rights not internationally but only within the territory designated for sale. This interpretation has found consistent support from the judiciary, and in fact, Justice Manmohan Singh of the Delhi High Court stated, in the John Wiley case, [IA No. 11331/2008 in CS (OS) No. 1960/2008 dated May 17, 2010], “As per my opinion, as the express provision for international exhaustion is absent in our Indian law, it would be appropriate to confine the applicability of the same to regional exhaustion”.

That Indian law follows regional exhaustion is extremely important to publishers because the publishing business models across the world depend on ability to divide rights according to territory, and the territorial division of rights is very closely allied to the issue of exhaustion.

Respect for Territoriality

The Indian Copyright Act explicitly recognises territorial divisions of rights: Section 19(2) of the Act enables and, in fact, mandates that the territorial extent of an assignment of copyright be specified in an assignment deed, and Section 19(6) states that if the territorial extent is not so specified, the assignment would be presumed to apply solely to the territory of India. Further, Section 30A of the Act states that the provisions enumerated in Section 19 also apply to copyright licences.

There have also been a number of cases in which the courts have recognised territorial divisions of rights. [such as (a) Penguin Books Ltd. v. India Book Distributors and Ors.. The High Court of Delhi. AIR1985Delhi29; (b) Eurokids International Pvt. Ltd. v. India Book Distributors Egmont Books Ltd.. The High Court of Bombay.] In fact, in the case of John Wiley & Sons Inc. & Ors. v. International Book Store & Anr., [CS (OS) No. 2488/2008 & IA No. 2856/2009 dated May 20, 2010.], Justice Bhat of the Delhi High Court unequivocally stated:

“Market segmentation – either vertically, or horizontally, in terms of geographical areas, or in terms of copies authorized to be made, or sold or rented, is an integral part of a copyright proprietor’s legitimate strategy to exploit his exclusive rights. The sale, and offer for sale, of such LPEs, meant for exclusive use in India, by the defendant, who is clearly targeting overseas buyers, to whom such products cannot be sold at Indian prices, constitutes acts of infringement under Section 51.”

Thus, under Indian law, territoriality has been respected by both the statute and by the judiciary. Being able to contractually designate territories under Indian law enables publishers to make available Low Priced Editions (LPE) in the Indian market at prices which are possibly the lowest in the world. This gives the Indian academic community, and students in particular, access to high quality international content at extremely affordable prices. In addition to this, it also gives Indian readers access to international trade fiction at extremely low prices.

The proposed amendment to Section 2(m) of the Act could, however, disturb the status quo by negating the respect accorded to territoriality, if it were to be enacted into law.

The Applicability of the Proposed Amendment to Exports

The Copyright (Amendment) Bill, 2010, proposes to amend Section 2(m) of the Indian Copyright Act, 1957 by inserting into the section a proviso which would state:

“Provided that a copy of a work published in any country outside India with the permission of the author of the work and imported from that country into India shall not be deemed to be an infringing copy.”

The proposed amendment, if it were to become law, would (along with amendments proposed to Section 14) leave no doubt that India follows the principle of international exhaustion with respect to all works protected by copyright including books.

The Report of the Parliamentary Standing Committee (to which the Copyright (Amendment) Bill, 2010, was referred for its recommendations) narrated the concerns of the Federation of Indian Publishers and the Association of Publishers in India – two representative bodies of Indian and international publishers. It stated that during the course of the oral evidence before the Committee, publishers had pointed out that "with this amendment, the low priced editions meant for Indian sub-continent could be exported back to the country of their origin where they were priced at much higher rates. Consequently, the publishers would lose the incentive to sell books in India or in the Indian sub-continent at subsidized prices. Reason being that foreign publishers would not like to grant the reprint rights to Indian publishers fearing low priced Indian editions flooding and diluting their own markets". This would be because the export or “leakage” of LPEs from India into developed, primary markets would adversely affect the sales of publishers in those markets as, by definition, LPEs cost less than foreign editions intended for sale in developed countries.

However, considering that the proposed amendment refers to “imports” and not to “exports”, there has been a debate about whether exports would be affected at all, and consequently, whether the leakage of Indian LPEs would be legalised. It is submitted that the proposed amendment could apply in respect of both exports and imports despite the fact that exports are not explicitly mentioned. This is because it is unlikely that the copyright framework would be interpreted in a manner where the one form of exhaustion would apply to imports and another to exports.

Further, considering that the law would be silent with regard to exports, and would explicitly state that international exhaustion was applicable with respect to imports, it is extremely likely that India would follow the principle of international exhaustion with respect to both imports and exports. The alternative would be to follow one form of exhaustion with respect to imports and another with respect to exports. Among other factors, it is worth noting that while having different forms of exhaustion apply to imports and exports may make for interesting academic discussion, the application of such an interpretation to the realities on the ground could be complicated.

Nonetheless, and although it would have been unprecedented, if there had been a specific exception carved out with respect to exports in the proposed amendment, it would have been possible to argue that national exhaustion would have applied with respect to exports, and that international exhaustion would have applied with respect to imports. However, the language of the proposed amendment places considerable strain of the credibility of such an argument.

In addition to this, it is also pertinent to note that one of the bases of the Wiley judgment is that Indian law does not explicitly follow the principle of international exhaustion, and that it follows the principle of regional exhaustion. The Wiley judgment does not create a new “export right”; it merely interprets Section 14 and the Explanation to it so as to mean that the right of issuing copies to the public is the right of issuing copies of a protected work in those territories in which copies have not already been legitimately issued. Of course, "issuing copies of a protected work in those territories in which copies have not already been legitimately issued" could involve having to export them. As such, export would be covered within the meaning of the Section.

If the proposed amendment were to come through, however, this situation would change, and there would be an explicit recognition in the Copyright Act that India followed the principle of international exhaustion; and this indication could be used to render nugatory the decision of Justice Manmohan Singh in the Wiley case.

As such, the proposed amendment would, in all probability, have the result of causing international exhaustion to apply to both imports and exports. This means that once a copy of a book were sold in India, it could be resold anywhere in the world without the consent of the publisher/copyright owner.

References:

• 227th Report of the Department-Related Parliamentary Standing Committee on Human Resource Development on the Copyright (Amendment) Bill, 2010.

Updated on February 15, 2011, in response to Pranesh’s arguments made in the comments (selected and summarised):

Pranesh: International exhaustion means that once a copy of a work is sold anywhere in the world, rights are exhausted in India i.e. the domestic territory.

Response: This does not appear to be accurate; international exhaustion indicates the exhaustion of rights internationally upon the first sale of the work.

Two explanations of international exhaustion (although not copyright-specific) have been pasted below in support of this:

ICC: ...the concept of international exhaustion ie. sale in any jurisdiction with the consent of the trademark proprietor exhausts (or negates) his rights arising under any other jurisdiction.

Valletti and Szymanski: However, many developing countries are lobbying for the adoption of a policy of “international exhaustion” to be adopted at the WTO. This would mean that goods placed on the market anywhere in the world could then be resold anywhere else (e.g. French perfume could then be re-imported from Russia).

Pranesh: Exhaustion does not form a basis of the Wiley judgment of Justice Manmohan Singh:

Response: Exhaustion could not help but have been a basis of the judgment: the judgment in fact has a whole section on exhaustion. There was no privity of contract between the defendants and the plaintiffs, and such, breach of contract could not have been the sole basis of the judgment. The only way in which the court could have reached its conclusions is by, inter alia, dealing with exhaustion and infringement -- which is what it did do. For infringement to have occured, a Section 14 right would have had to be violated / the infringing act would have had to be covered by Section 51. The violation of the Section 14 right in this case was the right to issue copies to the public. The question of where the right existed was dependant on the Explanation to Section 14. An interpretation of Section 14(a) in conjunction with the explanation would inevitably have led to conclusions regarding exhaustion being formed.

The quote extracted from the judgment stating that exhaustion is not relevant should be read in context; it does not state that exhaustion is irrelevant to the case.

Pranesh recognises that the judgment deals with exhaustion of the rights of the owner / licensee, and then goes on to state that regional / international exhaustion is irrelevant. While the judgment does differentiate between owners and licensees, considering that rights must be exhausted in a geographical territory, (and not in limbo), stating that the doctrine of exhaustion comes into play without the territorial aspect of the doctrine being affected appears to be untenable.

Pranesh: The assertion that 'publishing business models across the world depend on ability to divide rights according to territory' is false.

Response: I'm going to rely on what I've been hearing from publishers (assuming that thet are the best source of information about their own business practices), and my own knowledge (however limited) of the publishing industry to substantiate this. Although Pranesh has stated that the assertion is false, he hasn't said where publishing business models do not rely on territoriality. I am assuming that he's referring to open markets such as, I understand, Singapore. Pertinently, as I understand it, such markets tend to be primarily trading hubs without a well-developed domestic publishing industry.

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